## Accounting Equation:

The accounting equation is based on the double-entry system and based on this equation, the balance sheet statement is also prepared. This equation maintains the balance between and the total sum of capital and liabilities.

Previous Equation

### Assets = Liabilities + Capital

120,000 = 40,000 + Shareholders' Equity

Shareholders' Equity = 120,000 - 40,000 = $80,000 After the adjustments: ### Assets = Liabilities + Capital 120,000 - 45,000 (cash withdrawn) + 140,000 (Cash received on revenue) - 50,000 (Cash paid on expenses) = 40,000 + (80,000 - 45,000 + 90,000) 165,000 = 40,000 + 125,000 Hence, from the above equation, we can say that the owner's equity at the end of the year is$125,000.

Notes:

As the liabilities are not increased or decrease, it means that all the revenue is the cash revenue and all the expenses are the cash expenses.